Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Domino’s Pizza, Inc. (NYSE:DPZ).
Is DPZ a good stock to buy? Domino’s Pizza, Inc. (NYSE:DPZ) shareholders have witnessed a decrease in enthusiasm from smart money recently. Domino’s Pizza, Inc. (NYSE:DPZ) was in 35 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 47. Our calculations also showed that DPZ isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 66 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. With all of this in mind we’re going to view the latest hedge fund action regarding Domino’s Pizza, Inc. (NYSE:DPZ).
Do Hedge Funds Think DPZ Is A Good Stock To Buy Now?
At the end of September, a total of 35 of the hedge funds tracked by Insider Monkey were long this stock, a change of -26% from the second quarter of 2020. By comparison, 39 hedge funds held shares or bullish call options in DPZ a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were upping their holdings considerably (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of Domino’s Pizza, Inc. (NYSE:DPZ), with a stake worth $589.2 million reported as of the end of September. Trailing Renaissance Technologies was Arrowstreet Capital, which amassed a stake valued at $197.3 million. Fisher Asset Management, AQR Capital Management, and Two Sigma Advisors were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Crestwood Capital Management allocated the biggest weight to Domino’s Pizza, Inc. (NYSE:DPZ), around 3.26% of its 13F portfolio. Emerson Point Capital is also relatively very bullish on the stock, earmarking 2.75 percent of its 13F equity portfolio to DPZ.
Due to the fact that Domino’s Pizza, Inc. (NYSE:DPZ) has witnessed a decline in interest from hedge fund managers, we can see that there exists a select few money managers that decided to sell off their entire stakes last quarter. Interestingly, Gregg Moskowitz’s Interval Partners dropped the biggest investment of the 750 funds followed by Insider Monkey, worth an estimated $19.6 million in stock, and Steven Boyd’s Armistice Capital was right behind this move, as the fund said goodbye to about $15.6 million worth. These transactions are interesting, as total hedge fund interest dropped by 12 funds last quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Domino’s Pizza, Inc. (NYSE:DPZ) but similarly valued. These stocks are Tractor Supply Company (NASDAQ:TSCO), Fox Corporation (NASDAQ:FOXA), iQIYI, Inc. (NASDAQ:IQ), BioNTech SE (NASDAQ:BNTX), ORIX Corporation (NYSE:IX), MPLX LP (NYSE:MPLX), and StoneCo Ltd. (NASDAQ:STNE). This group of stocks’ market caps are similar to DPZ’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.4 hedge funds with bullish positions and the average amount invested in these stocks was $953 million. That figure was $1759 million in DPZ’s case. Tractor Supply Company (NASDAQ:TSCO) is the most popular stock in this table. On the other hand ORIX Corporation (NYSE:IX) is the least popular one with only 4 bullish hedge fund positions. Domino’s Pizza, Inc. (NYSE:DPZ) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for DPZ is 50.6. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 33.3% in 2020 through December 18th and beat the market again by 16.4 percentage points. Unfortunately DPZ wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on DPZ were disappointed as the stock returned -6.5% since the end of September (through 12/18) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.